SF Fed Pres Daly: The good news on inflation this week is indeed good news

<ul><li>Saying that we needed to 2 hikes was a way to keep optionality open</li><li>The good news on inflation this week is indeed good news</li><li>To early to say we can declare victory on inflation</li><li>Lags in monetary policy is 12 – 24 months</li><li>There is still cumulative effects of monetary tightening to work its way through the system</li><li>Thought that the banking crisis could be worth 1 to 2 tightenings, but not seeing that impact</li><li>Am mindful that we still have an economy that has a lot of momentum</li><li>We are going to continue to work on rate hikes until we are sure that inflation is on the path to come back down toward 2%</li><li>There is a risk that we over-tighten and a risk that we under-tighten. That is why we are data dependent</li><li>Hard to say wage growth is going to lead inflation down</li><li>Was not aware of problems at Silicon Valley Bank</li><li>If wait until inflation is 2% and have monetary lags, you want to head to a less restrictive policy to adjust for the lags.</li><li>As inflation starts coming down, can start lowering the nominal rate to bring real rates down to neutral levels</li><li>Wants to start heading towards the neutral rate as we approach 2% on inflation</li><li>We are not there yet. </li><li>The standing pad at the June meeting is about slowing the pace of hiking as we start to reach our destination</li><li>A way to slow the path is to skip a meeting</li><li>We don't know a lot of things. WHat is happening to inflation? What are the credit risk? What are the lags?</li><li>The market might be really focused on the CPI yesterday. I have more optionality. Fed should not be declarative.</li></ul><p>The interview was wide-ranging but Daly did walk back some of her hawkishness of her 2 more rate hikes comment a few days ago, saying that the keyword is keeping optionality open. She did imply that lowering rates could come before 2% target but still wants to be sure the path is to the downside. </p>

This article was written by Greg Michalowski at www.forexlive.com.